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TMI Blog2014 (7) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee’s PLI at arm’s length when compared to the average mean of the balance 9 comparables – Decided in favour of Assessee. Expenses on communication and freight and expenses – Expenses incurred in foreign currency – Deduction u/s 10A of the Act – Held that:- Following Patni Telecom P. Ltd. vs. ITO [2008 (1) TMI 452 - ITAT HYDERABAD-A] - the expenditure incurred in foreign exchange and communication / internet charges should be excluded from the ‘export turnover’ as well as from ‘total turnover’ for the purpose of deduction u/s 10A of the Act – thus, the order of the FAA is upheld – Decided against Revenue. - ITA. No. 472/Hyd/2011, ITA. No. 553/Hyd/2011, ITA.No.1775/Hyd/2011 - - - Dated:- 18-6-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Mr. Solgy Jose T. Kottaram For the Respondent : Mr. Ravi Bharadwaj ORDER Per B. Ramakotaiah, A.M. The appeals for the A.Y. 2005-2006 are filed by the Revenue and Assessee against the order of the CIT(A) -III, Hyderabad dated 13.01.2011 and for the A.Y. 2007-08 Revenue has filed the appeal against the order of the CIT(A)-V, Hyderabad dated 04.08.2011. Since, common issues are involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment to the ALP of such international transactions made by the assessee. Further, with the above additions and after allowing deduction u/s. 10A as computed by TPO, the A.O. completed the assessment u/s.143(3) of the Act vide order dated 30.12.2008, determining total income at ₹ 5,35,94,897. 3.1. Being aggrieved, assessee preferred appeal before the CIT(A) and objected to the computation of deduction under section 10A and has contested various issues under the transfer pricing adjustment made by the A.O. in the assessment order. Wile partially allowing the claims under sec.10A, Learned CIT(A) more or less rejected all the grounds pertaining to TP addition, accepted only one company as not comparable and directed the TPO to re-determine the adjustment. 4. We have heard the Ld. Counsel for the assessee and also learned D.R. in detail. Ld. Counsel placed on record a paper book containing about 591 pages and work sheets. In the course of arguments, Ld. Counsel focused his arguments to the selection of comparables by the TPO and risk adjustment to be given to the assessee. 5. The learned D.R. however, argued in detail about the selection of various comparables by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above 9 companies. The dispute arises from the balance of 7 companies from Sl. No. 10 to 16. Assessee is also objecting to the rejection of two comparable companies one Birla Technologies Ltd. and other VJIL Consulting Ltd. which the TPO rejected on the reason that they are persistent loss making/functionally different companies. As far as the selection of these 7 comparables are concerned, the assessee s objections and reasoning given are considered as under : 1. Bodhtree Consulting Ltd. The learned counsel submitted that this company should be rejected under the following TPO s filters: Related party transactions filter: As per schedule 4 of the balance sheet, the company has investments in Perigon, LIC, USA and as per the response u/s 133(6); the company has export sales to Perigon LIC, USA of ₹ 133.90 lakhs, being 34.68% of the total turnover. Functionally different filter: The company in its response to notice u/s 133(6) has stated that it provides e-paper solutions, data cleansing software, website development and other customized software and also state that the epaper solutions and data cleansing services would come under the category of IT ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 4. Foursoft Ltd. The learned counsel submitted that this company is functionally different as evident from various disclosures in the annual report (Directors report, Management discussion and website information) indicates clearly that the company is into software products. The following rulings have analysed and rejected this company as it has derived income from software license and AMC s: - Intoto Software India Pvt. Ltd. ( ITA No. 1196/Hyd/2010) - DCIT Vs. M/s Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 5. Thirdware Solutions Ltd.: Ld. Counsel submitted that this company is functionally different for the following reasons: As per reply to notice issued u/s 133(6), the company informed that it is engaged in implementation and customer services which include training, customized development and help desk services for ERP software and distribution of products of Quad Inc. and Hyperion Solutions Corporation. Various news articles available on the internet http://www.hinduonnet.com/2001/07/11/stori es/0611000h.ht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions Pvt. Ltd. Vs. ACIT (ITA No. 1846/Hyd/2012) - Adaptec (India) Pvt. Ltd. Vs. DCIT (ITA No. 1801/Hyd/2009) - DCIT Vs. M/s Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09) - Trilogy E Business Services Software Ltd. Vs. DCIT (ITA No. 1054/Bang/2011 Para 20) - Telcordia Technologies India P Ltd. (ITA No. 7821/Mum/2011 Para 7.4) - Cordys Software India Pvt. Ltd. Vs. ACIT (ITA No. 1972/H/2011) - Agnity India Technologies Vs. ITO (ITA No. 3856/Del/2010) - Agnity India Technologies Pvt. Ltd. Vs. ITO (High Court decision ITA 1204/2011) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 6. We have considered the issue and examined the record including paper books placed on record. There is a merit in assessee s contentions about non-comparability of various comparable companies selected by the TPO. 7. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Holool India Ltd. and in the director s report (PB-951), there is a clear mention that the company s income of ₹ 737.79 lakhs is possible with the amalgamation of Holool India Ltd. It was further mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee are made for the first time before the Tribunal. The Tribunal being the final fact finding authority is bound to take note of the objections of Assessee. As the material relied upon by the learned Counsel for Assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, we deem it f it and proper to remand this issue to the file of the Assessing Officer/TPO for reconsideration. If it is found that there is an amalgamation of Exensys Software Limited and Holool India Limited and formed as one entity viz.,Exensys Software Solutions Limited. during the relevant previous year and the financial result is the combined result of these two companies, then, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 8. In view of the above, we are of the opinion that there is an extra-ordinary event which resulted in high operating margin of that company and we, therefore, direct the AO to exclude this company from the list of comparables. In the above referred case of Intoto Software India Pvt. Ltd., complete details were not placed on record, therefore, the matter was sent to AO for ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s PLI at arm s length when compared to the average mean of the balance 9 comparables. In view of this, without considering the contention to include assessee comparables which are academic in nature, we direct the TPO to re-workout by excluding the above 7 companies. The other grounds (upto Ground No. 11) raised by the assessee on treatment of deferred revenue expenditure and risk adjustment also would become academic in nature, therefore, they are not adjudicated. The TPO/AO is directed to modify the order accordingly. Assessee s grounds 1 to 11 are considered allowed. 13. Ground No.12 does not require any adjudication in view of amendment to section 92C with reference to variation of 5%. Therefore, the same is rejected. 14. Ground No.13 pertains to inclusion of reimbursement transactions to the operating cost. In view of above decision of exclusion of comparables, this issue becomes academic in nature, therefore, not adjudicated. Ground no 14 is not pressed. 15. Ground No.15 is about inclusion of interest income, gain on sale of fixed assets, miscellaneous receipts as part of total turnover. It was the contention that these are not operating incomes so should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecom P. Ltd. vs. ITO (supra), we find no infirmity in the order of the Ld. CIT(A). Further, this issue is squarely covered by the decision of the Hon ble Bombay High Court in the case of Gem Plus Jewellery 330 ITR 175 and also Special Bench decision of the ITAT, Chennai in the case of ITO vs. Sak Soft Ltd. 313 ITR(AT) 353 wherein it has been held that communication charges etc., attributable to the delivery of the computer software outside India, which are to be reduced from the export turnover, should be reduced from the total turnover as well while computing the deduction under section 10A. Therefore, following the aforesaid ratio laid down, we affirm the direction to the A.O. to reduce the amounts from the export turnover as well as total turnover while computing the deduction under section 10A of the I.T. Act. We accordingly dismiss ground Nos.2 to 4 in ITA.No.1775/Hyd/2011 and the sole ground in ITA.No.553/Hyd/2011 of the Revenue. 22. In the result, ITA.No.1775/Hyd/2011 and ITA.No.553/Hyd/2011 of the Revenue are dismissed. 23. To sum-up, ITA.No.472/Hyd/2011 of the Assessee is partly allowed for statistical purposes, ITA.No.1775/Hyd/2011 and ITA.No.553/Hyd/2011 of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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